Gantry cranes tower over container ships being loaded and unloaded at the Port of Vancouver on February 10, 2022. In Canada, new ISSB regulations are being examined by a new Canadian Sustainability Committee.DARRYL DYCK/The Canadian Press
New global accounting rules for measuring and reporting climate-related impacts, due to come into force early next year, will give investors the tools to make better decisions and make it harder for companies to exaggerate about environmental justice, the leader said body development said.
The International Sustainability Standards Board (ISSB) is nearing completion of what it calls a global baseline for reporting practices in response to widespread complaints that a hodgepodge of disclosure methods makes comparing and analyzing company progress on such issues a confusing drudgery might. The rules are expected to be finalized by mid-year and will come into effect from January 2024.
The aim is to help investors, regulators and others to accurately assess how non-financial environmental, social and governance factors affect a company’s wealth and assets. Climate is the initial focus of the board, presented at the COP26 Summit in Glasgow in 2021.
One of the main reasons for the creation of the ISSB is to combat greenwashing – making false or exaggerated environmental claims, said parliamentary group leader Emmanuel Faber on Friday. Over the past year, regulators and law enforcement agencies in North America and Europe have dealt with a number of high-profile cases in which investment firms have been penalized for overstating their green bona fides.
“Greenwashing paralyzes market decisions. You don’t know what’s true and what’s not, so you don’t make decisions. At the same time, we don’t count everything that counts. Accounting counts many things, but we don’t take into account a number of very important things, and climate change is the first of them,” Mr Faber said in an interview at the ISSB’s first major symposium in Montreal, which the group attended from its North American base .
“Climate change will redefine competitive advantage in supply chains, value chains and finance for the foreseeable future. And there is a clear need from investors, expressed in having a language that allows them to measure and count things like climate change.”
Canada continues to loosely regulate ESG funds amid claims of “greenwashing” elsewhere
In Canada, the ISSB regulations are being studied by a new Canadian Sustainability Standards Board, which will be responsible for adapting them to an economy with a large number of extractive companies and small and medium-sized businesses that are heavily export-dependent. She is about to elect a chairman.
Mr Faber said he expected little opposition to adopting the rules as the G20 and the International Organization of Securities Commissions (IOSCO), the standard-setting body for securities regulators, including Canada, have called for the formation of a sustainability standard.
IOSCO, which represents 130 national regulators as well as a number of related bodies, welcomed the ISSB’s decision to proceed with the finalization phase and said the standards are a response to the urgent need to eliminate fragmented disclosures.
Mr Faber, who was previously CEO of Paris-based food company Danone SA, also expects markets to voluntarily adopt the standards. “We are in a situation where there are hundreds of ESG metrics everywhere and market participants are really looking to use one language, and only one, in a much more efficient way to drive capital allocation decisions,” he said.
A global baseline is also expected to influence business decisions. Mark Carney, who was governor of the Bank of Canada and then the Bank of England, told the symposium companies can better assess how they will fare in a low-carbon economy and invest in assets accordingly. A mining company, for example, could abandon coal extraction in favor of battery metals to remain competitive, said Mr Carney, the UN special envoy on climate and finance.
The first standards are based on the framework of the international Task Force on Climate-Related Financial Disclosures, which has become the gold standard for reporting on climate-related risks, and the Sustainability Accounting Standards Board. They require the disclosure of material information about sustainability-related risks, similar to financial accounting. At the same time, the sustainability information and the annual financial statements are published.
The ISSB also calls for disclosure of key climate-related risks and opportunities, including risks related to physical damage and the transition to lower-carbon energy, as well as opportunities from technological advances.
Disclosure of all three issuance ranges is required for investors to understand transition risk, the ISSB said. Scope 1 includes CO2 emissions from a company’s own operations. Scope 2 includes emissions from the energy a company purchases to operate its facilities. Scope 3 includes emissions along a company’s supply chain and from the end-use of its products.
The latter is the most difficult to quantify. The ISSB gives companies one year before requiring Scope 3 reporting so they can improve measurement and disclosure practices.
In 2021, the Canadian Securities Administrators, the umbrella organization for the country’s securities regulators, initiated a process to move public companies to mandatory climate-related disclosures. It has been criticized by some quarters for not going far enough on some fronts, such as B. to give companies the option not to disclose all three emission areas.
That process was put on hold after the ISSB and the US Securities and Exchange Commission proposed tougher draft regulations.
Ontario Securities Commission chief executive Grant Vingoe said a date for Canada’s adoption of the ISSB standards in 2024 has not yet been set. “We definitely want to be part of the global baseline, but with the CSSB not yet operational and pending IOSCO confirmation, I don’t necessarily want to commit to a date,” he told The Globe and Mail.
Source: www.theglobeandmail.com
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